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Assignment

Analysis of a costing system of a Gul Ahmed Textile Mills Limited

Muhammad Arsalan Khan

2228-2020

Department of Business Administration, Indus University

Cost Accounting

Imran Tariq

Assignment Due Date: 03-06-2024

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1. Introduction of the Company:

This study examines the cost of goods manufactured (COGM) for Gul Ahmed Textile Mills
Limited, a manufacturing company in Pakistan that is listed on a stock exchange.

Brief Profile:

Gul Ahmed's tale is the story of textiles in the subcontinent. By the early 1900s, the group was
engaged in textile trade. In 1953, the group ventured into the manufacturing sector by founding
Gul Ahmed Textile Mills Ltd, which is now a well-known brand. Since becoming public on the
Karachi Stock Exchange in 1970, the company has expanded quickly and occupied a prominent
place in the textile industry.

With 300 cutting-edge weaving machines, an installed capacity of over 51,840 spindles, and the
most advanced yarn dyeing, processing, and stitching units, Gul Ahmed is a composite unit that
produces everything from cotton yarn to finished goods. Gas engines, gas and steam turbines and
backup diesel engines make up Gul Ahmed's in-house power plant. Gul Ahmed, which is
committed to doing its part to preserve the environment, has also established a wastewater
treatment facility to clean all of its effluent and raise it to NEQS standards.

Financial Objectives:

By growing its market share, broadening its product line, and entering new markets, Gul Ahmed
hopes to generate steady income growth.
For every business segment, such as yarn, textiles, and clothing, the corporation may establish
distinct revenue goals that are contingent upon market demand, production capabilities, and
pricing tactics.
Revenue goals may be in line with consumer preferences, market developments, and
macroeconomic issues that have an impact on the textile business.

Size, Growth Rate, and Contribution Margin:

By making investments in R&D, increasing production capacity, and investigating new markets,
Gul Ahmed hopes to accomplish both organic and inorganic growth.
The organisation may endeavour to reach emerging markets, expand its product offerings, and
gain access to new technology through joint ventures, acquisitions, or strategic alliances.
Increasing market share, breaking into foreign markets, and growing the retail footprint through
e-commerce or franchising are a few examples of growth objectives.
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2. Analysis of Cost of Goods Manufactured (COGM):

Cost of goods manufactured

Raw materials consumed 59,062,066

Other material and conversion cost 12,466,950
Stores and spares consumed 650,112
Salaries, wages and benefits 10,551,144
Fuel, power and water 5,147,938
Insurance 126,469
Repair and maintenance 1,332,974
Depreciation 2,854,113
Depreciation on right of use assets 24,785
Provision for slow moving/obsolete items 38,539
Other manufacturing expenses 611,761

92,866,851

Work-in-process

Opening 759,762
Transfer from finished goods -
Closing (1,736,880)
(977,118)

91,889,732

3. Strategies to Reduce Cost of Goods Manufactured:

 Change of Costing System:

Outsourcing: Identify direct and indirect costs that can be outsourced to third-party vendors.
Analyze the cost-saving potential and risks associated with outsourcing certain functions.

 Supplier Negotiation: Assess the possibility of negotiating better terms with existing
suppliers or sourcing materials from alternative suppliers. Discuss the importance of
building strategic partnerships for cost optimization.

4. Break-Even Analysis:

 Break-Even Point (BEP): Calculate the BEP in terms of units or revenue using the
relevant formula. Interpret the BEP in relation to sales targets and pricing strategies.

5. General Queries:
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 Increasing Profit with Low-Margin Products: Propose strategies such as product

differentiation, cost leadership, and value-added services to enhance the profitability of
low-margin products.
 Mitigating Freight and Import Costs: Recommend tactics such as consolidating
shipments, optimizing supply chain routes, and hedging against currency fluctuations to
mitigate the impact of rising freight and import costs.

Amount invested/spent: Amount of investment made/committed by Company, in strategic

initiatives, during FY 2021 and 2022 were as under: Wastewater Treatment Rs. 658.36 million
Solar Power Plant Rs. 34.20 million Organic Cotton Rs. 156.083 million Philanthropist activities
Rs. 21.2 million